The ruling on the field is...

The ruling on the field is...

By Mike Troy - 09/28/2016

Football season is in full swing, and at some point this year a major controversy will arise at a crucial point in a game regarding whether a player caught the ball.

The definition of "a catch" has become very nuanced thanks to technological advances such as high-resolution zoom lenses and super slow motion that allow every frame of on-field action to be dissected from multiple angles. All sorts of variables now require analysis, such as whether the ball was gripped tightly enough to constitute possession, was the receiver in the field of play, or in the case of a fumble, was the ball held for an adequate amount of time before being jarred loose. The rules attempt to account for every possibility, but the game is so dynamic that new situations continually arise that require interpretation.

The same is true of the retail industry, where the definition of "employee" is now subject to ambiguity thanks to the emergence of technology-enabled business models. Uber is the obvious example, but countless others comprise what is now alternatively referred to as the on-demand, gig, freelance or 1099 economy. Uber doesn't employ workers; it simply provides a platform that connects supply and demand.

Growth of the 1099 economy is expected to continue for as long as companies are able to circumvent the costs associated with how workers are classified.

It is the same concept employed by third-party home delivery services. These services have gained popularity with retailers who view the 1099-based labor model as a cost-effective and expedient solution to standing up their own home delivery infrastructure staffed with real employees.

Growth of the 1099 economy is expected to continue for as long as companies are able to circumvent the costs associated with how workers are classified. What's also expected to continue is criticism of a labor model which denies workers the type of protections, benefits and career opportunities afforded to W-2 employees that work either part or full time at retail companies.

The criticism is well deserved for a couple reasons. One the one hand, companies reliant on 1099 labor are allowed to flourish and command high valuations based largely on an ability to avoid labor-related costs such as benefits. Meanwhile, retailers are getting crushed on labor costs. Some of it is self-imposed, because hourly wages and more generous benefits are being offered to attract and retain higher-caliber employees in a tightening labor market. However, other costs are related to regulations imposed by politicians intent on demonstrating concern for the American worker.

For example, the Affordable Care Act defines a full-time employee as someone who works at least 30 hours a week and therefore must receive health insurance. Meanwhile, new rules are in place to "protect" salaried employees too. Beginning Dec. 1, the wage threshold that makes employees exempt from overtime roughly doubles to more than $46,000. Salaried employees who make less than that amount will receive time-and-a-half when they work more than 40 hours.

The growing contrast between what is expected of companies who have employees and what is not expected of those who rely on 1099 workers has become so distorted that legislative proposals to address the disparity are sure to arise after the election. What form they take and the implications for retailers will be influenced by the outcome of the election. However, if lawmakers continue to heap greater expectations on companies who hire real employees while giving those who don't a pass, that will be a bad outcome, sure to cause more debate about when an employee is an employee. Retailers depend on a strong middle class to fuel consumer spending, and that's not what they get in an economy with a growing percentage of 1099 workers, even though some retailers currently take advantage of the services provided by firms' dependent on 1099ers.